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The geopolitical and market bogeymen of the moment – Kim Jong Un, Vladimir Putin, tariffs, cyber warfare – are riding tall in the saddle.
That’s sparked something of a “flight to safety,” which ignited a bit of an uptick in demand for Treasuries this …

If targeting political extremes generates the most profit, then that’s what these corporations will pursue.As many of you know, oftwominds.com was falsely labeled propaganda by the propaganda operation known as ProporNot back in 201…

This weekend, I’d like to take a slightly nostalgic trip down Memory Lane, into the dark, swirling menacing pool that was the dawn of the Internet. OK, that sentence didn’t end up quite where I meant it to.

When I started my newsletter business in October of 2000, I decided to have a little fun with it on this new thing called the World Wide Web, aka “the internet.” If you, like me, are of a certain age, you remember well that we started every web address with the ubiquitous www.

WSJ: “Ten Years After the Bear Stearns Bailout, Nobody Thinks It Would Happen Again.” Myriad changes to the financial structure have seemingly safeguarded the financial system from another 2008-style crisis. The big Wall Street financial institutions…

It has been 2 months since I last had a chance to respond to reader comments. This seems like a good time to pause and take the opportunity to do so again. Keep them coming!

Today, since I’m in a contrarian mood, I thought I’d focus on ever-so-kindly replying to people who don’t see eye to eye with me…

I really enjoy these exchanges. They get my creative analytical juices flowing, and force me to consider alternative viewpoints which I may not have done initially.

In fact, the more rebuttals I write, the kinder I feel! Which is why I’ve decided to report a special gold opportunity today (continuing our prickly theme with an investment that is the very definition of contrarian right now).

If indeed this inflation hysteria has passed, its peak was surely late January. Even the stock market liquidations that showed up at that time were classified under that narrative. The economy was so good, it was bad; the Fed would be forced by rapid economic acceleration to speed themselves up before that acceleration got out…

The authors’ thesis doesn’t explain the 47-year downtrend of labor’s share of the economy.

“Yet recent academic work in macroeconomics suggests that current wage stagnation has less to do with robots and more to do with real estate and market power.A provocative essay, Don’t Blame the Robots, makes the bold claim that “Housing Prices and Market Power Explain Wage Stagnation.” (Foreign Affairs) In other words, the stagnation of the bottom 95% of wages isn’t caused by automation or offshoring, but by the crushingly high cost of housing:

Real wage growth is a function of two things: changes in productivity and changes in the share of national output attributed to labor. If the share of GDP going to workers doesn’t change, then real wages simply track productivity.”

The market power argument is straightforward: as competition declines, cartels and quasi-monopolies scoop up a larger share of the national income, leaving relatively less for labor.

The high housing costs crush wages argument is more nuanced. The high cost of housing means that much of the nation’s available capital stock is invested in housing, rather than in productivity-boosting capital investments. This diversion of capital from productivity to housing reduces the productivity gains that enable higher wages.

The authors describe a second dynamic: the soaring cost of rents / purchasing housing in high-productivity cities such as New York and San Francisco effectively locks out lower-productivity/wages workers, pushing them into low-productivity locales which then have an oversupply of labor, further pressuring wages.

The authors claim that wages have dropped because workers have to devote a larger share of their earnings to housing, but this erroneously conflates real wages and disposable income: the two are entirely different.

If a worker earns 12% more pay annually, and inflation is 2% per annum, her real (adjusted for inflation) wages rise by 10%. If her housing costs rise by 20% in the same time period, her disposable income, i.e. what’s left after paying for housing, declines despite her higher income.

In other words, the higher cost of housing may well lower disposable income, but that’s not the issue: the issue is the stagnation of real wages paid by employers to employees (and the earnings of self-employed people).

While these arguments describe a little-noticed connection between capital, housing costs and wages, the case is not entirely persuasive. While it’s clear that sky-high rents in Manhattan and San Francisco are unaffordable to average wage earners, what about cities in the Midwest, Southwest and Southeast with much lower housing costs?

In cities where it’s still possible to buy a small, older home for $60,000 – $90,000, and rent an apartment for $450 to $700 per month, shouldn’t the wages be higher, since the cost of housing isn’t prohibitive? Some cities provide a mix of high and low-productivity jobs and low to moderate housing prices. If the authors’ premise is correct, there ought to be a discernible correlation between low housing costs, a mix of higher-wage and lower-wages jobs and broadly higher wages.

While I don’t know of any studies that track these variables, my sense is cities with relatively low-priced housing exhibit the same stagnating wages for the bottom 95% as high-cost cities.

I think it more likely that high housing costs exacerbate the income-wealth divide rather than explain secular wage stagnation. Take a look at this chart of the spending patterns of the top 5% and the bottom 95%. Clearly, the top 5% have pulled away from the 95%. Wages aren’t stagnating for all workers; rather, wage gains are flowing upward to the favored class that can optimize managerial/technical/financial expertise.

The authors’ thesis doesn’t explain the 47-year downtrend of labor’s share of the economy. Housing was relatively stable for much of the past four decades, while labor’s share of GDP fell steadily. Even more unsettling, labor’s share fell off a cliff in the period 1990 to 1996, when housing was flat even in high-priced regions.

The siphoning off of capital from productive investments to unproductive housing is a core dynamic in explaining the stagnation of productivity. But this doesn’t explain why employers either can’t or don’t have to pay higher wages in an era of steadily rising costs for nearly every major expense: not just housing, but healthcare, college tuition, etc.

Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I am a contractor for Money Map Press, publisher of Money Morning, Sure Money, and other information products. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. In some cases I receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.

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